Industry Committee on Dec. 12th, 2006

[William Bartlett]

Yes, and Quebec does indeed effectively limit interest to about 35%, I believe, through what I believe is an unconscionable transactions act. That effectively means payday lenders can't and don't operate in Quebec. Any other province could choose to do that.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

In that case, how can you justify this bill? From what I understand, it simply allows industry to charge higher interest rates.

[William Bartlett]

The majority of the other provinces do wish to allow the payday lending industry—we have any number of them in Ottawa operating in storefront operations—to operate in a lawful, regulated environment. The consumer affairs ministries of those provinces have accepted that there is a demand for those kinds of loans and those kinds of circumstances, but that the lenders cannot operate viably in the circumstances in which they do with an effective annual rate of interest at 60%. That is a compound rate of interest covering all fees and charges, including the application fee and everything else. The provinces wish to be able to regulate them and set a total cost of borrowing that will be higher than 60%, which will allow for a viable industry but not provide for excessive fees and charges. The provinces have been asking the federal government for the ability to regulate their business practices, for us to provide and exemption from section 347 so that they can do it.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Has Quebec expressed a written or verbal opinion on this bill? Are you familiar with Quebec's position on this matter?

[William Bartlett]

I haven't seen a written opinion and I haven't actually heard an oral opinion from the Government of Quebec. Quebec did participate in the alternative consumer credit market working group. In fact, the Quebec representative on that group was very active and very helpful in the group's deliberations. As I recall, he indicated that Quebec wasn't looking to change its policy and allow payday lenders to operate in Quebec, but he understood and appreciated that the other provinces did wish to allow them and he was very helpful and instrumental in their work.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

The office of the Quebec minister has informed me that he saw a problem with respect to a procedure whereby a province would be designated by the federal government. Could you please explain to me why we need the federal government's blessing for legislation that has been in place in Quebec for 20 or 25 years and which provides for a maximum interest rate of 35%?

What legal justification does the federal government have to require not only that Quebec inform it if it has legislation of this type, but also to ask it to provide confirmation that the legislation is in keeping with the federal government's expectations?

[William Bartlett]

Neither Quebec nor any other province requires any permission of any sort from the federal government to regulate any lending industry in its province within the 60% limit set by the Criminal Code. The Criminal Code otherwise applies to all lending transactions in Canada, so if a province wishes to allow lending transactions in excess of 60%--and that's what we're talking about with payday lending--then the Criminal Code otherwise simply prohibits that and makes it a criminal offence.

Unless there's an exemption in place, the provinces simply are not in a position to do that.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

There is a contradiction between what you said and the information in the information book that we received on the bill. I will read to you what it says about clause 2, subsection 347.1(3) at tab 4 of the English version, page 2:

This amendment sets out the procedure by which a province obtains a designation from the federal government. The designation shall be issued, upon request by a province, if the province demonstrates that it has legislative measures in place that protect recipients of payday loans and which include a limit on the total cost of borrowing.

The federal designation of a province is necessary to enable the exemption of authorized payday lenders from section 347 of the Criminal Code. The requirement to demonstrate the existence of applicable consumer protection legislation, including a limit on the total cost of borrowing, insures that provincial consumer protection measures are in place prior to enabling the exemption from section 347.

So there is a designation by the federal government, and it will come with certain conditions. This amounts to a type of mandatory blessing or trusteeship. There seems to be a contradiction between what you told me and what I just read from our information booklet.

[William Bartlett]

No. With respect, if Quebec, as I say, or any other province is going to regulate at or below 60%, then section 347 can simply apply as well, and there's simply no conflict and no need for an exemption. If there's going to be an exemption from section 347, there are simply two requirements: that there be a consumer protection regime that applies to these payday loans, and that it include alternative limits on the costs of borrowing.

Section 347 sets a limit on the total cost of borrowing. The legislation would simply provide that if a province is going to operate an alternative regime, there has to be another limit on the cost of borrowing that replaces the limit under section 347. That's all it requires--and that there be consumer protection measures that apply to these arrangements. That's all.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

So why not simply have stated that if a province informs the federal government that it has legislation of this type, this would be enough? Would it be acceptable if the bill stated this instead?

[William Bartlett]

Quite frankly, that's more or less the way it's going to operate. The province is going to inform the federal government that it has legislative measures that protect recipients of payday loans and that provide for limits on the total cost of borrowing under the agreements. Once they have advised them that they have those measures, the designation will flow from that.

There's really no intent here for the federal government to pass on the adequacy of the provincial legislation. That will be for the province to decide. It simply has to have certain very basic characteristics. One is that it be legislation that protects recipients—I don't think that's going to be a problem in any province that seeks this exemption—and that they have some other limit on the cost of borrowing other than the 60% limit prescribed by section 347. Since section 347 is going to be displaced by this exemption, the federal Parliament would be saying, here's the requirement for having the limit that section 347 otherwise imposes lifted: that there be consumer protection and that they have another limit on it. That's all.

[The Chair, Conservative, James Rajotte]

Thank you, Monsieur Crête.

We'll go to Mr. Carrie now, for six minutes.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

I'd like to thank the officials for coming today. I don't want to take up a lot of your time, but I want to clarify, maybe with industry officials, how the consultations were done with the provinces. If I got you right, none of the provinces were against this. Is that true, specifically for Quebec? They didn't raise any concerns about it?

[Michael Jenkin]

The discussions took place over a very long period of time, about five years, and part of this reflected, I think, to some extent, the very changing character of the industry. These discussions took place as the industry is rapidly changing across the country. To be frank, some jurisdictions were very much more concerned about this problem than others, because they had a much larger problem, particularly in western Canada where the industry started out. They were the main interlocutors on this issue and the ones who were very keen on moving quickly on it.

Other provinces who had less experience of the phenomenon—particularly, say, in the eastern part of the country—were not so concerned about it. So it took a while for jurisdictions to come to a view about what would be the most appropriate set of protections to put in place, which we did over a series of studies, a number of studies that were carried out. As I mentioned in my remarks, we also did consultations with stakeholder groups, consumer protection experts, and the industry that's involved in payday lending, as well as credit counselling organizations, and others. The idea behind this was to get as broad an understanding both of the phenomenon as it was emerging and what the most appropriate and effective mechanisms would be for consumer protection.

What we ended up with in the end was, I think, a fairly good consensus across the country about what should be in a package of protection measures. I think the real question was the sense of urgency and how quickly the various jurisdictions wanted to move on the issue. So the structure of this proposal is designed in such a way that, for those provinces who do not feel that it's necessary to take action at this time, they can live with the Criminal Code provision if they wish. For those who feel that the problem has become a significant one in their jurisdictions, and as I said, there are many provinces in that situation now, there's a good opportunity for them to proceed with a regulatory structure both controlling rates and controlling—and I think this is equally important, to be frank—the business practices that are associated with this kind of lending.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair, and thank you to the witnesses here this afternoon.

I have just one question, but I want to get on the record that I do support the passage of this bill, and as quickly as possible. It's hard to imagine that we have $1 billion in business here and 1,300 different institutions that affect the wealth of many different individuals, and there's no set of rules in place right now. I think it's important to point out that this is enabling legislation for licensing and regulation that is vacant right now, and I know it's not just Manitoba that has been leading the charge on this. There are other governments—Alberta, Saskatchewan, Nova Scotia, and New Brunswick—that have also indicated sincere preparatory work to move on this.

What I would like to focus on is that there was some attempt at one point to have a universal approach to this across the board for Canada. That didn't quite come into place, and maybe we can shed a little light on that, because I think it might ease some of the concerns. Once again, this is going to facilitate those who want to go forward to this type of regulatory regime, but at the same time, it doesn't force anyone to do anything, and that's important. If it's not passed, my understanding is that the governments that do want to move on this in their own provincial rights will then be stymied and will not be able to proceed in any effective way to protect Canadian consumers.

[Michael Jenkin]

That is very much the case. A number of jurisdictions are very keen to proceed. They recognize this as a big problem. There has been--and I would emphasize this again--five years of discussion among governments about the appropriate way to proceed. There's a lot of common understanding today about both the nature of the problem and what needs to be done among jurisdictions. So this is not happening in an environment where we're simply opening it up to the provinces to do what they wish. A lot of discussion and thought has gone into this among the jurisdictions themselves and a good consensus on what appropriate measures are and how to proceed with them.

We are in a very mature stage in the development of this issue. As I mentioned, a number of the governments have passed legislation, not only in Manitoba but in Nova Scotia. At least three other governments have made statements in the press that they intend to proceed and they're anxious to proceed now, because, as you say, they feel right now this is an area that is currently unregulated and is an issue of major concern in their jurisdictions.

[Brian Masse, NDP, Windsor West, ON]

It's important to note the significant transition with borrowing practices in this country. My constituency has been faced with a series of bank closures, giving people limited options. And to imagine another Christmas going by where there is no regulation that affects individuals who will lose out in predatory practices.... Not all are like that. That's why the industry has come forth, as well, as part of this solution.

Mr. Chair, I certainly would support passage of this bill, and I want to thank the delegates here today.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Masse.

We will go to Mr. McTeague.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Mr. Chair, very briefly, I'm pleased to see this bill is here today and I recognize, along with my party, the importance of protecting consumers, the fact that many of them may be subjected to outlandish fees that may amount in some circumstances up to 2,600% per year in interest rates or additional charges.

I believe this is an honourable thing to do, and our party believes this is an honourable thing to do, to protect Canadian consumers from sea to sea to sea. As a result of the comments made by Mr. Bartlett, I believe there is more than just insufficient protection and flexibility to give the provinces the operational room to work with. I've heard from too many provinces, too many consumer groups, and I believe we should get on with this as quickly as possible.

I have no further questions, Mr. Chair, but I want to make sure that the Liberal Party's position on advancing this good piece of legislation is clear and without equivocation.

[The Chair, Conservative, James Rajotte]

Thank you very much.

We'll go now to Mr. Carrie.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

I have no further questions for the officials, but I do want to concur with the honourable members Mr. McTeague and Mr. Masse about the importance of this legislation.

I'd like to move a motion, Mr. Chair, and I'll have the clerk pass that out to everybody in both official languages, if that's possible.

[The Chair, Conservative, James Rajotte]

On a point of order, Mr. Crête.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Before going to a motion, I think it is important that we hear from members who have not been able to speak on this and would like to do so. We have not finished the round. This is the first time we have discussed this bill. We have not given serious consideration to the question I raised. We had other questions to ask, and we were waiting for the second round to get that information. I think that at the very least, we should hear all the answers to members' questions.